Superlong JGBs gain

Superlong Japanese government bonds gained on Thursday, with the 30-year yield hitting a three-month low, as an auction of the maturity drew strong demand despite a coupon that was the lowest in over five years. The yield curve flattened as 20- and 30-year JGB yields, which had recently lagged the declines in yields of shorter-dated maturities, fell while yields of shorter maturities were flat to a touch higher.
Although the 2.2 percent coupon was the lowest since the February 2004 tender, market players said the 600 billion yen ($6.8 billion) 30-year sale attracted strong demand from dealers covering short positions and domestic life insurers looking to extend the durations of their bond assets to match their liabilities. The bid-to-cover ratio, a gauge of demand, was unchanged from the previous tender's 3.27 but the lowest price was significantly higher than expected.
The dwindling attraction of investing in foreign bonds in the wake of a global decline in debt yields was also seen as enhancing demand for 30-year JGBs. The 10-year/30-year yield spread had widened to a one-month high of around 92 basis points at the start of the week before tightening by 2.5 basis points to 87.5 basis points on Thursday. "Yields up to the 10-years have broken below significant levels recently, but the superlongs have been the exception as they have been moving within the same range for the last several months," said Akito Fukunaga, a fixed-income strategist at Credit Suisse.
While 30- and 20-year yields fell to three-month lows on Thursday, over the past month two- and five-year yields have already fallen to four-year lows and the benchmark 10-year yield has dropped to an eight-month low. December 10-year futures dipped 0.02 point to 139.35 after brushing 139.61.
The 30-year yield dropped 2.5 basis points to 2.135 percent after touching 2.115 percent, a three-month low. The 20-year yield declined 0.5 basis point to 2.000 percent after touching 1.980 percent, also a three-month trough. The benchmark 10-year yield was unchanged at 1.260 percent after hitting 1.245 percent. It fell to an eight-month low of 1.240 percent at the beginning of October. The five-year yield edged up 1 basis point to 0.585 percent. The two-year yield climbed 1 basis point to 0.245 percent.